As a means to make a financial product more attractive to customers, a financial institution may offer the financial product with some principal protection. Ideally, the financial product is offered with 100% principal protection. However, principal protection comes at a cost to the financial institution, since with such products the financial institution bears the risk of the principal falling in value. Upon maturity of a principal protected financial product, if the product is valued below the initial investment amount, the financial institution would be burdened with providing the difference to the seller.
Accordingly, there is a need for a method of providing a principal protected financial product that allows a financial institution offering the product to hedge the risk involved with guaranteeing the return of principal.